Vendor Management- What is it?
We have encountered a lot of discussion lately about vendor management. Indeed vendor management has been getting increased exposure among large businesses primarily with companies now setting up Offices of Vendor Management and new roles in the executive suite such as Chief Vendor Management Officer. The curious thing is almost everyone has a different view on what constitutes vendor management. Some of that depends on who you talk to and what responsibilities they may have in an organization. For instance, a person who works in sourcing may have a vastly different view of vendor management than another person who is in the accounts payable department. And it is not only the position you may hold in an organization that influence your opinion on “what is vendor management” but the company and industry will impact the definition as well, even to the point of the name, i.e., Vendor Management vs. Supplier Management.
Regardless of what you call it or how your department views it, there are some common themes and characteristics that we can establish: Vendor Management is a set of processes, activities, systems and information management tools (data & document repositories, etc.) that allows an organization to manage and have maximum visibility into all activities associated with a vendor from defining vendor profiles based on needs of the organization, recruitment (RFx), on-boarding, tracking, scoring and through all of the transactional activities and systems in the procure-to-pay process. Key to all of this is building an organizational/management structure to manage and take ownership of all vendor related activities.
While not all of the characteristics defined above may apply equally to all organizations, there is generally some form of activity or process surrounding these in every organization, even if discrete and largely undefined. In fact, identifying and formalizing these “discrete and undefined” processes is often a crucial element in establishing a vendor management program. And vendor management should not be the exclusive province of large companies. Any company who expends time and resources on managing vendor activities, who depends on their vendors as mission critical components of their core business, or companies that have complex supply chains can benefit from a defined and structured vendor management program.
So here are some of the components that you should take a look at in evaluating a vendor management program: all the activities, processes, systems, people, and information assets that are part of the vendor life cycle; identify all vendor touch points, who is responsible for the touch points; the interplay between departments/vendor for each touch point; reporting and visibility into vendor activities and vendor performance; identify relative success or failure of each touch point and identifiable vendor activity. Define who owns each process or piece of the vendor life cycle and how issues are escalated and resolved. Based on what you find you can begin to identify where the holes are, where the challenges will be and put together the outlines of a vendor management program for you company.
There are technologies that can assist you in streamlining vendor management activities not only for your organization, but for your vendors and suppliers as well. Technologies likeVendor Portals, Portal Based Vendor On-boarding Systems, Workflow and Business Process Management Systems, Vendor Information Management Systems, and several other powerful business tools that will help streamline these complex and often resource intensive processes.
Implementing a formal vendor management program can be a very beneficial undertaking that can deliver substantial economic benefits as well as strengthen vendor relationships and facilitate more secure supply chains.